The Overnight Report: Commodities Push Higher
By Greg Peel
The Dow closed up 35 or 0.3% while the S&P gained 0.3% to 1320 and the Nasdaq added 0.6%.
Wall Street was again in tune with the euro last night as the Dow opened down 40 points but then began to rally. A sudden surge at 3pm saw the average up over 80 points before the euro drifted back and so did Wall Street.
Movements in the euro affect the opposite in the US dollar index which was weaker for most of the session before returning to be little changed at 75.91. It was lower when commodity markets closed nevertheless which provided enough fuel for traders to continue to act on forecast revisions from Goldman Sachs and Morgan Stanley on Tuesday night with the emphasis on oil, copper and zinc.
Brent crude was up US$2.40 to US$114.93 and West Texas was up US$1.73 to US$101.72/bbl. The gains came despite an expected increase in weekly US inventories. Copper rose 2% and zinc 3% and once again dragged the rest of the complex along. Gold was steady at US$1525.80/oz but silver jumped again, up 3.5% to US$37.89/oz.
So it was the energy and material sectors leading the charge once more in the face of some again weak US economic data.
Durable goods orders fell 3.6% in April marking their biggest decline since October last. Economists had expected a fall, noting orders are always weakest in the first month of a new quarter, but only of 3.0%. Take out lumpy aircraft and transport elements, and the fall was 1.5%.
The FHFA house price index, which measures prices of houses with Fannie/Freddie mortgages, fell 0.3% in March and 2.5% for the March quarter. The average price of houses with a prime agency mortgage is now down 20% from the April 2007 peak.
It seems that with euro-debt once again threatening default, foreign central banks are keen to park their funds in the mid-range maturities on offer from the US Treasury. Last night's auction of five-year notes was well bid with 47% going to foreigners compared to a 40% running average. That's the highest level since October. The benchmark ten-year yield is currently sitting at 3.13%.
The UK announced that its first estimate of March quarter GDP of 0.5% growth was unchanged on the first revision.
Despite commodity strength and a weaker dollar for most of the session, the Aussie managed to slip back 0.3% to US$1.0529.
It was a rather dreary day on the local bourse yesterday, led by the banks, which gave almost a hint of capitulation. But another strong offshore session for commodities has at least made futures traders enthusiastic for a bounce. The S&P 500 was only up 0.3% but the SPI Overnight is up a solid 40 points or 0.9%.
A good omen or wishful thinking?
Today in Australia sees the release of first quarter capital expenditure and capex intentions – one of the most important components of GDP and a focal point for the RBA. The central bank sees strong investment in the mining and energy sectors as the greatest driver of the inflation it is keen to tame. The weaker than expected first quarter construction work done result released yesterday helped sour the mood, so all eyes will be on capex today.
Tonight the US will provide the first revision of its first quarter GDP, and a pretty significant jump to 2.2% growth is expected from the 1.8% initial estimate.
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